Fact-checking President Trump’s tax speech in Indianapolis
President Trump’s speech on the administration’s still-somewhat-vague tax plan, delivered in Indianapolis on Sept. 27, was filled with many of his favorite, inaccurate claims. For instance, he repeatedly says he is offering the “largest tax cut in our country’s history,” a dubious claim when properly measured as a percentage of the nation’s gross domestic product. Here’s a sampling of other inaccurate claims — and one case in which he appears to have adjusted his language because of our previous fact checks.
“To protect millions of small businesses and the American farmer, we are finally ending the crushing, the horrible, the unfair estate tax, or as it is often referred to, the death tax.”
The president’s suggestion that “millions” of small businesses and farms are affected by the estate tax is absurd. According to the nonpartisan Tax Policy Center, only about 5,500 estates in 2017 — out of nearly 3 million estates — would have to pay any taxes. About half of estates subject to the tax would pay an average tax of about 9 percent. That’s because for a married couple, about $11 million is exempt from taxation.
Only 80 — that’s right, 80 — of taxable estates would be farms and small businesses.
That’s a big change from the past. In 1977, 139,000 estates had to pay the tax. In 2000, it was 52,000. But Congress has kept raising the exemption and lowering the tax rate. So for virtually all Americans, even farms and small businesses, the estate tax is just not a problem.
“Today, our total business tax rate is 60 percent higher than our average foreign competitor in the developed world.”
Trump exaggerates here. The United States certainly has one of the highest statutory corporate tax rates in the world, currently pegged as high as 39.1 percent when including state taxes. (The federal rate is 35 percent.) Trump says it is 60 percent higher than “our average competitor in the developed world,” comparing 39.1 percent to the average rate for the other members of the Organization for Economic Co-operation and Development, which is 25.5 percent when not weighted for GDP. (It is 31.4 percent when weighted for GDP.)
But the official rate does not necessarily tell the whole story. What also matters is the actual tax a company pays, after deductions and tax benefits. That is known as the effective tax rate, which can be calculated differently depending on the survey. According to the Congressional Research Service, the effective rate for the United States is 27.1 percent, compared with an effective GDP-weighted average of 27.7 percent for the OECD. “Although the U.S. statutory tax rate is higher, the average effective rate is about the same, and the marginal rate on new investment is only slightly higher,” the CRS says.
The Congressional Budget Office, when it examined the issue, said the U.S. effective tax rate was 18.6 percent, which it said was among the highest of the biggest economic powers, the Group of 20.
“Americans waste so much money, billions and billions of dollars and many hours each year to comply with our ridiculously complex tax code. More than 90 percent of Americans use assistance to prepare their taxes.”
Kudos to Trump for updating a formerly misleading phrase that “more than 90 percent of Americans need professional help to do their own taxes.” This 90 percent figure refers to people who file taxes by hiring professionals or using tax software, such as Turbo Tax, which helps people file their taxes on their own. According to the National Taxpayer Advocate’s 2016 report, 54 percent of individual taxpayers pay preparers and about 40 percent of individual taxpayers use software that costs about $50 or more.
Still, it’s worth pointing out that there are more options now for people to easily file their taxes, using these paid or free software. For the 2016 tax year, the Internal Revenue Service launched a Free File program, a public-private partnership that allows people with adjusted gross incomes of less than $64,000 to file their taxes using free software. Roughly 70 percent of American taxpayers are eligible for this free software, according to the Free File Alliance, which partners with the IRS for this program.
“A married couple won’t pay a dime in taxes on their first $24,000 of income. So a married couple, up to $24,000, can spend their money on their family, on their children, on what they have to do — so much better.”
It’s debatable that this would be much better for a middle-class couple with children — and it could be worse. The tax plan would nearly double the standard deduction, $12,000 for individuals and $24,000 for married couples, but also eliminate personal and dependent exemptions (currently $4,050 per family member).
So a couple with two children already “don’t pay a dime” on their first $28,800. That’s because they get $12,600 in a standard deduction and $16,200 in dependent and personal exemptions. It’s possible Trump’s expanded child tax credit might help make up some of the difference, but maybe not.
Lily Batchelder, a professor of public policy at New York University who was deputy director of the National Economic Council in 2014-2015, “conservatively” estimated in 2016 that “Trump’s plan would increase taxes for about 8.7 million families,” but the number could be as high as 11 million under “reasonable assumptions.” That analysis was based on Trump’s campaign plan, which envisioned a larger increase in the standard deduction ($30,000 for a married couple).
“The tax strategy that Ronald Reagan used to create an economic boom in the 1980s when our economy took off, the middle class thrived. And the family income of all families was increasing more and more, and it was a beautiful sight to behold.”